4 Hassles You Can Expect to Hate When Owning Residential Rental Properties

Has anyone ever told you that investing in real estate can be a huge pain in the you-know-what? So many articles — and many of them even mine — go on and on about how rockin’ investing in real estate can be. What most articles don’t tell you though is what you can expect to hate about investing in real estate. What? Real estate investing isn’t perfect?! Shocker, I know.

Let’s paint this out into some reality.

I only deal with rental properties, so those are all I’m going to speak to. If you flip or wholesale or whatever, I could guess at what the specific annoyances about those might be, but I don’t know for sure so I’m not going to try.

Be very clear though — despite all of these annoyances I’m about to list out about owning rental properties, I still buy them. That’s how good of an investment I think they can be. Sure, you can avoid annoyances by investing in stocks, for example, but you also lose out on the perks, too. If you want to know more about why I’m adamant real estate is amazing (despite the annoyances), check out “4 Reasons to LOVE Owning Real Property (Over Stocks, REITS, & Notes).”

Are you armed and ready for the bad news? The bad news of what utter, complete, obnoxious annoyances you can anticipate dealing with if you buy rental properties? Here goes!

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4 Hassles You Can Expect to Hate When Owning Rentals

Dealing With Problem Tenants

Does there even need to be a list after tenants? Probably not! Tenants are usually a very black and white situation when it comes to rental properties. They either make your life exceptionally awesome or exceptionally horrible. Good tenants will keep your life easy, profitable, and amazing. Bad tenants will give you more headaches than you can imagine, and they can cost you an absolute fortune. The only real middle ground with tenants is if you have solid paying tenants but they are high-maintenance and kind of annoying so you just kind of have to put up with them (but you’re still making your profit).

A real bummer about tenants is that it can be really hard to decipher who the good ones will be. Oftentimes people who look fantastic on paper (credit scores, income, etc.) can go completely haywire and ruin your life, and sometimes people who look terrible on paper can be your easiest and nicest tenants. It can be six of one, half a dozen of another, and there’s no perfect equation to say for sure who you will end up with.

One of the absolute best mitigations against bad tenants is to have higher end properties in nicer areas that you can charge more for. It’s never a certainty you won’t still get bad tenants at higher price ranges (it most definitely still happens), but at least it lessens the chance. The lower the rents on a property, the lower quality tenants you will attract. That’s when things can get wild. Just know, bad tenants are the number one cause of disastrous headaches and stress, and they are an absolute bash to your wallet. I’ve lost thousands, and I mean THOUSANDS, to bad tenants. Bad tenants are no joke. So get educated and try your best to mitigate the potential of getting the bad ones.

The Hassle of Repairs

These can range in frustration levels from just annoying to mega cash loss. Normal, everyday repairs aren’t too bad. It’s just a matter of getting out there or getting someone out there to fix them. For bigger repairs, though, the financial consequences can be quite painful. Hopefully on the really big ones, you can get insurance to chip in, but at a minimum, there can still be headaches with that.

Generally, though, repairs are unavoidable. A property will always deteriorate to some degree, and you, the owner, will be responsible for keeping it up. Repairs can be a beast in themselves, but when things really get fun is when it’s actual tenant damage. Hopefully insurance does kick in for those, but tenant damage can get pretty severe.

For example, I had a tenant last year who negligently lit the fireplace without the flue open and left the house. Every single floor of the house ended up with severe smoke damage, and basically everything in the house had to be replaced. Insurance did step in for it, but the time to do the repairs and the vacancy that was forced due to the time for the rehab and the overall stress of the whole thing was tremendous. You know what was really the most stressful part about that whole ordeal?

Handling Subpar Contractors

Oh man, don’t even get me started. Is it just because I’m a blonde girl who legitimately doesn’t know anything about how to fix things, or does everyone have as hard of a time with contractors as I do? It’s like pulling teeth sometimes! I can think of no contractors I’ve worked with so far who didn’t either steal from me, completely dupe me for pricing, take an astronomical amount of time to finish the work, or give me something different than I originally wanted at a much lower quality level.

Obviously, the common thread there is me, but dealing with contractors is a tricky world and not for the birds. I’m a pretty smart chick, but I get duped by them constantly. I think my fault is I’m too trusting, but it does go to show how hard it can be to find good, upstanding contractors. Enter headaches stage left.

Working With Less-Than-Ideal Property Managers

Obviously, this one is avoidable if you don’t use property managers, but if you are like me and always use property managers, you could be in for a fun ride. The only thing that has cost me more money on my rental properties than bad tenants is bad property managers. Bad property managers can cost an owner a lot in repair overages, vacancies, bad tenants, and not taking care of the property. Headaches can be huge with property managers, too. The next worst thing to a property manager costing me a fortune is them causing me constant undue stress. I still use them for my properties because I’d take property management headaches any day over tenant headaches, but they are still super annoying at times.

See a trend with a lot of those? People. Except for repairs and things breaking, every other downside has to do with people. I actually started questioning humanity after I got into real estate. Not sure if you’ve noticed lately, but humans can really suck. And there are tons of humans involved in this industry, and usually they are held to little accountability!

Outside of people, what about numbers? Notice I don’t mention property values as being a downside of owning rental properties. Property values going up or down affect any property, right? Well, not totally. Ultimately, the value of your rental property only matters if you are buying or selling. If you are just holding, a decrease in value doesn’t matter.

With that said, what does matter in terms of “value,” so to speak, for a rental property is rental demand and rents. If the rental demand goes down, you could be stuck with increased (costly) vacancy periods, and if general rents go down, your cash flow could be dramatically (negatively) affected and possibly put you at a loss on a property you were previously profitable on. Be sure to get educated on how to smartly buy rental properties. Then you have less risk of those things happening. Otherwise, all you need to worry about is whether a property is estimated to cash flow or not, and you should be OK on the numbers. The only things at that point that could negatively affect your numbers are the things I listed above.

So what do you think? Are you ready to ditch rental properties as an investment strategy completely? I’m not! Despite losing thousands to bad tenants and having headaches because of everyone else in the process, I still stand behind rental properties all day long. If you are curious why, in spite of the frustrations, check out “4 Reasons to LOVE Real Estate Over Any Other Investment Out There.” The fact is, I’ve still made more than I’ve lost because I bought smart.

Any other major downsides to owning rental properties you have experienced or can add to the list? Have the downsides ever deterred you from buying rental properties?

Leave a comment, and let’s talk!

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About Author

Ali Boone(G+) left her corporate job as an Aeronautical Engineer to work full-time in Real Estate Investing. She began as an investor in 2011 and managed to buy 5 properties in her first 18 months using only creative financing methods. Her focus is on rental properties, specifically turnkey rental properties, and has also invested out of the country in Nicaragua.

29 Comments

Ali
You missed four more. Albeit, your list are the FIRST four but if you are in this game long enough, you will encounter these next four.

1. Whiny, complaining neighbors. I had neighbors complain that one of my tenants put one of those Wind Art pieces that spin, in the front yard. I had another neighbor complain about the BREED of dog that my tenant had, not the barking, not the digging, just the BREED.
2. HOA’s. I had an HOA in Texas write me a letter saying that my tenant had “weeds in the front yard” which ended up being a couple of Dandelion plants.
3. Governments, including City, County, State and Federal. I had a tenant who had a CITY PERMIT to grow six “Medical Marijuana” plants and then the Federal Government threaten to take away my property for allowing Marijuana to be grown there. And don’t forget the Property Tax issues, City Business Permits and repair permits.
4. Insurance Companies, especially when there is a claim. I had to pay for a roof, out of pocket, and it took three months for me to get my insurance claim check.

So you are right Ali, there are downfalls to owning Real Estate. But if you are prepared for them, there are many more positives!

#4..Well you better get better insurance. I had a claim and they deposited the money into my bank account before I returned home with the meeting with the adjuster.

#3….If your letting folks grow pot in your rental…………..just no words for that one. There is no agency that will advocate for manufacturer or growth of any medical product in the United States in a residence or residential area. . Thats just on you if your allowing that foolishness. Before long they will be manufacturing CBD and your home will be burned to the ground and you will be back at square one width your lousy insurance.

I always find it interesting to hear how others investors use insurance, especially when it pertains to capex. I approach insurance as a hedge against catastrophic loss (fire), or perhaps flood if I was in a flood zone. I would never replace a roof with insurance. New roofs are just a cost of doing business, and to risk higher rates or being dropped altogether is just not acceptable.

In a windstorm when tree branches puncture a 6 year old roof…..Thats not the cost of doing business. Its an accidental loss that an insured is covered for. Its what you pay for. To make up the $3900 it costs would take a huge premium rise for a decade plus that wont happen.

Jay
I actually have a GREAT insurance company, but the story is a very long one, and had a lot of frustrations. The story is too long here to elaborate, but to make it short, a person BETWEEN me and the actual insurance company “dropped the ball.” My annual insurance premiums went from about $25,000 a year to about $13,000 a year, and this was my first claim in 35 years of investing. I have saved over $50,000 in the past 5 years. So although getting a $7,000 claim paid had some issues, overall, I am way ahead.
As for the marijuana growing, neither I or the Property Manager knew anything about it until I got a letter from the DEA. The six marijuana plants would fit inside of a muffin pan. Once we found out, then we discovered the CITY PERMIT that the tenants had to grow it, per California State Law, it WAS LEGAL. And once we found out, we asked the tenants to either STOP growing it or move out. BUT, we did not file a Legal Eviction because the tenants were NOT doing anything illegal. How did the DEA find out who was growing pot? They went to the County Sheriff’s Office and got the names and addresses of all the permit holders.
So before you start JUDGING me about my “foolishness”, maybe you better just keep your thoughts to yourself before you look foolish. In California, “Absent a local ordinance, state law will allow 100 square feet of medical cannabis for a patient, and allow caregivers to grow 500 square feet for up to five patients.” And every city/town has their own laws, so good luck. Personally, I will NOT allow any to be grown at any house I own.

Well the good news is all 4 of those items can be eliminated if you just handle things yourself. Most posts on BP are the more more more variety. Sometimes smaller can serve you better. If your screening your tenets yourself you can get good renters. No need for property mangers if your running your own show so scratch that off. On the the repairs if you know what your doing you eliminate contractors and the hassle of the repair. Repairs seldom come at a good time but most can be done by a handy person. Those who struggle with all 4 of the above items probably should not be in investment real estate as yes….you are just inviting those issues in.

Semi-agreed Jay, on the part about being able to eliminate those things, but the reality is not everyone does know how to do repairs on there own. Or in my case, I have to invest long-distance because LA doesn’t make sense. So if I were to go off your last statement and say I probably shouldn’t be in real estate because I struggle with some of those things…can’t say I agree there. Real estate works great for me, despite some of the headaches. I don’t think it’d be fair to rule me totally out of the game.

Screen, screen, screen your tenants like crazy. You still may get a loser, but get them out as fast as the law allows.

Find a good contractor ( s) and treat them like gold. Pay them on time and be fair.

Most major repairs you can plan for. A bunch of my houses have new or newer roofs and furnaces, but I have two roofs I will need to replace in the next couple of years. Replace before it starts leaking. Frequently you can get a deal on outside repairs in the late fall, when the contractors know winter is coming. Have your HVAC equipment cleaned and serviced on a regular basis to prolong life and to avoid Christmas Eve phone calls.

I have never had a problem with neighbors. I always give them my business card and encourage them to call if my tenant is being disruptive. I drive by my houses frequently, but good neighbors are good policy.

I have a great insurance carrier ( Country Mutual) for my home, car, and rentals. Get an umbrella liability policy. It is very cheap relative to the coverage.

Agree with the comment on local governments and it is only getting worse. Crime Free housing is a license for local towns to steal from honest landlords. Ditto for rental house inspections. If I like a town or area, I will buy more houses there. I am steering away from nanny state villages with their high taxes and bad laws.

In this area ( Chicago metro) we are still having hangover from the banking crisis. The good news for landlords is there are REALLY, REALLY, a lot of people looking for homes to live in. I am getting 150 responses from a simple Zillow post or Craigslist post ( both of them are free). Get your house in good shape, set your rent correctly, screen your renters and your odds of success will go up.

Thanls for the article, Ali. I wasn’t t expecting much from such a hands-off, out of state, turnkey investor’s point of view, but I guess some of the finer joys of rental ownership can even permeate that model.
I’ll stick with handling things myself and avoid most every issue mentioned. Cheers!

My only problem is the persistent idea that people with money are higher quality people. On its face that cannot possibly be true.

An anecdote: When I was very young, I worked for a new private stable. The stable charged an exorbitant $10,000 (in today’s dollars) annual membership fee before the hourly fees. I told the owner that such fees would price out a lot of customers. He said he wanted to insure that he would have the highest quality customers. I told him that at those prices, he would end up with the mafia as customers. And that is exactly who he got. They did not care about the horses at all, did not follow the cool-down procedures, and within a year rode the horses into the ground, and the stable went out of business.

I totally agree, Katie. There can be lots of situations where the big-dollar folks are much worse. And most certainly with rental properties, there’s no guarantee about anyone or anything. It’s all about risk mitigation. There chances are better with higher–paying tenants, but there are certainly horrible ones. There are excellent lower-paying tenants, but the chances of getting bad ones is oftentimes higher. But all of that is dependent on several factors. Context is huge, and knowing nothing is fool-proof is huge.

As a new and still researching investor, I thank you for showing that for every upside in real estate there is a downside. This article has helped me get my mind wrapped around a few challenges that I will certainly face. The good news is that if these challenges are part of the business and financial plan then you can just get through them and move on.

Exactly, Debbie. And honestly I would say in thinking of the balance….I think there is more upside than downside. Where people get in a pickle is ignoring the downsides, but when those are known and mitigated and dealt with, the upsides can be phenomenal!

Ali
I love your list and had issues with all four of them. I am sure you will get posters who think that they can eliminate all four of them by self managing and/or doing the repairs themselves and/or doing good tenant screening. But like you, I don’t invest in Real Estate just to have another JOB. I mean, what’s the point? The reason I invest in Real Estate is that I do NOT want a job. Plus, if I were to DIE today, NOTHING would be negatively affected with my investments. My heirs would just keep receiving all that passive income. And if my wife and I decided to go on a Year Long Cruise and NEVER contact our PMs, we would come back a year from now and nothing would be different. Now THAT is PASSIVE INCOME! If there was an EXTREME EMERGENCY, one of our six adult children could make a phone call or two, NOT to us, and get it taken care of. The insurance issue I mentioned earlier was DURING A SALE of a piece of property, and there would not be any sales if we were gone. All of my PMs now know my stance on growing Marijuana, so that is already covered. An Extreme Emergency would be a 9.1 earthquake or other natural disaster.

Couldn’t agree more, Mike. I have absolutely zero interest in self-managing my properties. I totally see the perks of it, but those don’t align with how I want my life structured. I want to be completely independent from having to work at all….not take on another job, even if it is less hours than a normal job. I prefer hanging at the beach 😉

I think it’s great you highlight the negative aspects of REI although I completely agree, there’s no better asset class to invest in than real estate. My takeaway is the importance in being able to deal with people. Problems will present themselves, it’s your job to have those same people on your side to fix the problem; coming out of the gate yelling/pointing fingers presents a losing situation for everyone. Great article, Ali.

Ali: I’m somewhat appalled by the fact that you refer to yourself as “a blonde girl who legitimately doesn’t know anything about how to fix things”, and then turn around and refer to yourself as “a pretty smart chick”. I’ve said this before and will say it again: If you own real estate, even if you have no intention of working on it yourself, you simply MUST educate yourself. Contractors can smell ignorance like a dog can smell fear. Of course, this problem is compounded when you’re a woman dealing with men, which is 99% of the time, but I would give this advice just as well to men who own property. There’s a wealth of information on the Internet and it’s a good idea to spend some time at the Home Improvement stores so that you have a decent idea of how much materials should cost.

I’ve owned property for about 40 years and flipped quite a few, doing almost all the work myself. In the beginning, it took me hours at a stretch just walking around Lowe’s and Home Depot, checking out materials and prices and asking a million questions of anyone who seemed knowledgeable (you also have to learn how to spot the ones, especially older men, who want to give you misleading advice and to make even simple things sound as though they are far beyond your capabilities). In just a few short months I learned an amazing amount about almost any part of a property you can name and my time investment has paid for itself hundreds of times over.

I hope you don’t feel I’m just dumping all over you, and that you can take this advice from an older, more experienced woman (not chick…) in the spirit in which it’s intended.
If I see a post from you in the future telling us how you R&R’d a toilet, I’ll be first in line to shake your hand!

Hahaha Maggie, and no not a dump at all! I always appreciate any feedback someone is willing to offer. And actually I am glad you phrased it how you did… I never realized that “pretty smart chick” could be taken in the completely wrong way than I meant it (not sure which way you took it but when I read it I saw it as something different than my original intent)– there’s a difference in “I’m a pretty smart chick” and “I’m a pretty, smart chick”. Eek. I definitely wasn’t calling myself pretty. “pretty smart”, not “pretty and smart”. I might be rambling pointlessly but sheesh, sorry if it came off as calling myself pretty. Going to watch that one in the future!

I totally respect your feedback and applaud you for doing the work yourself and beating out the boys 🙂 Unfortunately for me, I just have absolutely no interest in doing that level of work myself so won’t be teaching it all to myself anytime soon. Where I need to get smarter is in managing contractors and whoever else (or in my case, not trusting them so easily).

It’s all a trade-off though and everyone will have personal preference. I prefer not to do any work myself but then I have the downside of getting duped by contractors. You don’t have to worry about that, but then you have to do all the work yourself.